Intel has always prided itself on its huge capital expenditures. Investments in fabs have helped the company become the world's largest chip manufacturer, as well as the proprietor of the most advanced semiconductor processes.
The chip giant is already making 22 nm chips, when most other chip makers are just starting on 28 nm devices. More importantly, Intel is expected to be the first to move to the 14 nm process later this year.
At the same time, as the PC market continues to struggle, Intel finds itself sitting on lots of extra fab capacity. What to do? The obvious move, but a surprising one for a company that considers the manufacturing process its key competitive advantage: sell it. The company formed a foundry business about three years ago, but until recently its customers have been tiny companies. Its first announced customer, in November 2010, was programmable logic startup Achronix Semiconductor. It signed another startup focusing on programmable chips, Tabula, in February 2012.
This year, however, Intel's foundry effort has finally gained steam. In January, it signed Microsemi Corp., a $1 billion company that sells analog and mixed-signal semiconductors. In February, Intel struck a foundry deal with $1.5 billion Altera Corp.
Brian Krzanich's appointment as Intel's new CEO in May signaled that the company would emphasize and grow the foundry model to take advantage of its strong manufacturing investments and generate revenue, according to analysts. Krzanich came up through Intel's manufacturing ranks. Before becoming COO, he held senior positions in manufacturing, including process technology and also assembly and test.
After decades of touting its manufacturing prowess as its main competitive advantage, it's hard to imagine that Intel can make the foundry model work. It's one thing to make chips for others using older technology, but Intel is apparently opening the kimono for at least one foundry customer. The deal with Altera will give the programmable chip vendor access to Intel's upcoming 14 nm trigate transistor technology, which Altera CEO John Daane believes will give his company a significant edge over its main competitor, Xilinx, according to Reuters.
“We are essentially getting access like an extra division of Intel. As soon as they're making the technology available to their various groups to do design work, we're getting the same,” Daane told Reuters.
The have also been unconfirmed reports that Cisco Systems is an Intel foundry customer.
Intel doesn't have foundry in its DNA, so it will be interesting to see whether it can satisfy its customers and sign on new business. During Intel's second-quarter earnings call on July 17, Krzanich said that Intel would choose its foundry customers carefully. “We'll look at them individually, from a strategic standpoint, looking at what size of business they bring, and whether their products can really take advantage of our process leadership,” he said.
The jury will probably be out for a while. “Even the customers that we've already signed up — the ones you've heard about in the press — those revenues and the impact on Intel's bottom line is still a ways out,” he told analysts.
The company is being careful to put in place the right systems and customer support models that will enable it to operate as a foundry, he said. “Since we haven't been a foundry business, we want to make sure we really know what we are doing.”
What do you think? Can Intel make this shift?